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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended September 30, 2010

Or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission File No. 001-34061





HSN, INC.

(Exact name of registrant as specified in its charter)







|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                      |  | 26-2590893                          
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. Employer Identification No.)

1 HSN Drive, St. Petersburg,
Florida 33729

(Address of principal executive offices, including zip code)

(727) 872-1000

(Registrants telephone number, including area code)





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

As of November 1, 2010, the registrant had 57,753,558 shares of common stock, $0.01 par value per share, outstanding.









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HSN, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q



|                             |  |                                                                                                                               |    |      |    | 
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                             |  |                                                                                                                               |    | Page |   
|Part IFinancial Information |  |                                                                                                                               | 3  |     
|                             |  |                                                                                                                              
|Item 1.                      |  | Financial Statements (Unaudited)                                                                                              |    |      | 3  | 
|                             |  |                                                                                                                              
|                             |  | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009                         |    |      | 3  | 
|                             |  |                                                                                                                              
|                             |  | Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009                                                    |    |      | 4  | 
|                             |  |                                                                                                                              
|                             |  | Consolidated Statements of Shareholders Equity for the Nine Months Ended September 30, 2010 and Year Ended December 31, 2009 |    |      | 5  | 
|                             |  |                                                                                                                              
|                             |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009                                   |    |      | 6  | 
|                             |  |                                                                                                                              
|                             |  | Notes to Consolidated Financial Statements                                                                                    |    |      | 7  | 
|                             |  |                                                                                                                              
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |    |      | 15 | 
|                             |  |                                                                                                                              
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |    |      | 22 | 
|                             |  |                                                                                                                              
|Item 4.                      |  | Controls and Procedures                                                                                                       |    |      | 22 | 
|                             | 
|Part IIOther Information    |  |                                                                                                                               | 23 |     
|                             |  |                                                                                                                              
|Item 1.                      |  | Legal Proceedings                                                                                                             |    |      | 23 | 
|                             |  |                                                                                                                              
|Item 1A.                     |  | Risk Factors                                                                                                                  |    |      | 23 | 
|                             |  |                                                                                                                              
|Item 2.                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |    |      | 23 | 
|                             |  |                                                                                                                              
|Item 3.                      |  | Defaults Upon Senior Securities                                                                                               |    |      | 23 | 
|                             |  |                                                                                                                              
|Item 4.                      |  | Removed and Reserved                                                                                                          |    |      | 23 | 
|                             |  |                                                                                                                              
|Item 5.                      |  | Other Information                                                                                                             |    |      | 23 | 
|                             |  |                                                                                                                              
|Item 6.                      |  | Exhibits                                                                                                                      |    |      | 23 | 
|                             | 
|Signatures                   |  |                                                                                                                               | 24 |     



2



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PART IFINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

HSN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|----------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                      |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                      |  | 2010                            |         |   | 2009                           |   |         | 2010 |  |   | 2009      |  
|Net sales                                             |  | $                               | 708,359 |   |                                | $ | 641,244 |      |  | $ | 2,081,564 |   |  | $ | 1,910,947 |  
|Cost of sales                                         |  |                                 | 458,632 |   |                                |   | 404,176 |      |  |   | 1,336,693 |   |  |   | 1,230,784 |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Gross profit                                          |  |                                 | 249,727 |   |                                |   | 237,068 |      |  |   | 744,871   |   |  |   | 680,163   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Operating expenses:                                   |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Selling and marketing                                 |  |                                 | 132,404 |   |                                |   | 120,997 |      |  |   | 382,899   |   |  |   | 367,909   |  
|General and administrative                            |  |                                 | 58,654  |   |                                |   | 55,501  |      |  |   | 169,224   |   |  |   | 160,220   |  
|Production and programming                            |  |                                 | 16,165  |   |                                |   | 14,922  |      |  |   | 44,697    |   |  |   | 42,383    |  
|Amortization of intangible assets                     |  |                                 | 141     |   |                                |   | 140     |      |  |   | 422       |   |  |   | 421       |  
|Depreciation                                          |  |                                 | 9,566   |   |                                |   | 9,430   |      |  |   | 28,986    |   |  |   | 28,510    |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Total operating expenses                              |  |                                 | 216,930 |   |                                |   | 200,990 |      |  |   | 626,228   |   |  |   | 599,443   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Operating income                                      |  |                                 | 32,797  |   |                                |   | 36,078  |      |  |   | 118,643   |   |  |   | 80,720    |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Other (expense) income:                               |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Interest income                                       |  |                                 | 182     |   |                                |   | 124     |      |  |   | 428       |   |  |   | 212       |  
|Interest expense                                      |  |                                 | (8,271  | ) |                                |   | (8,768  | )    |  |   | (24,873   | ) |  |   | (26,517   | )
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Total other expense, net                              |  |                                 | (8,089  | ) |                                |   | (8,644  | )    |  |   | (24,445   | ) |  |   | (26,305   | )
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Income from continuing operations before income taxes |  |                                 | 24,708  |   |                                |   | 27,434  |      |  |   | 94,198    |   |  |   | 54,415    |  
|Income tax provision                                  |  |                                 | (9,821  | ) |                                |   | (10,849 | )    |  |   | (36,938   | ) |  |   | (21,210   | )
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Income from continuing operations                     |  |                                 | 14,887  |   |                                |   | 16,585  |      |  |   | 57,260    |   |  |   | 33,205    |  
|Loss from discontinued operations, net of tax         |  |                                 | (9      | ) |                                |   | (13     | )    |  |   | (24       | ) |  |   | (69       | )
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Net income                                            |  | $                               | 14,878  |   |                                | $ | 16,572  |      |  | $ | 57,236    |   |  | $ | 33,136    |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Income from continuing operations per share:          |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Basic                                                 |  | $                               | 0.26    |   |                                | $ | 0.29    |      |  | $ | 1.00      |   |  | $ | 0.59      |  
|Diluted                                               |  | $                               | 0.25    |   |                                | $ | 0.29    |      |  | $ | 0.96      |   |  | $ | 0.58      |  
|Net income per share:                                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Basic                                                 |  | $                               | 0.26    |   |                                | $ | 0.29    |      |  | $ | 1.00      |   |  | $ | 0.59      |  
|Diluted                                               |  | $                               | 0.25    |   |                                | $ | 0.29    |      |  | $ | 0.96      |   |  | $ | 0.58      |  
|Shares used in computing earnings per share:          |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Basic                                                 |  |                                 | 57,607  |   |                                |   | 56,391  |      |  |   | 57,279    |   |  |   | 56,362    |  
|Diluted                                               |  |                                 | 59,724  |   |                                |   | 57,502  |      |  |   | 59,403    |   |  |   | 57,151    |  

The accompanying Notes
to Consolidated Financial Statements are an integral part of these statements.



3



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HSN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



|                                                                                                                                                                |  |               |            |   |              |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------ | - | ---------- | -
|                                                                                                                                                                |  | September 30, |            |   | December 31, |  
|                                                                                                                                                                |  | 2010          |            |   | 2009         |  
|ASSETS                                                                                                                                                          |  |               |            |   |              |   |            |  
|Current assets:                                                                                                                                                 |  |               |            |   |              |   |            |  
|Cash and cash equivalents                                                                                                                                       |  | $             | 259,386    |   |              | $ | 269,921    |  
|Accounts receivable, net of allowance of $10,498 and $11,608, respectively                                                                                      |  |               | 133,116    |   |              |   | 182,746    |  
|Inventories                                                                                                                                                     |  |               | 338,378    |   |              |   | 261,473    |  
|Deferred income taxes                                                                                                                                           |  |               | 22,101     |   |              |   | 21,960     |  
|Prepaid expenses and other current assets                                                                                                                       |  |               | 51,245     |   |              |   | 47,152     |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|Total current assets                                                                                                                                            |  |               | 804,226    |   |              |   | 783,252    |  
|Property and equipment, net                                                                                                                                     |  |               | 153,071    |   |              |   | 157,051    |  
|Intangible assets, net                                                                                                                                          |  |               | 260,763    |   |              |   | 261,185    |  
|Other non-current assets                                                                                                                                        |  |               | 13,924     |   |              |   | 17,162     |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|TOTAL ASSETS                                                                                                                                                    |  | $             | 1,231,984  |   |              | $ | 1,218,650  |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                            |  |               |            |   |              |   |            |  
|Current liabilities:                                                                                                                                            |  |               |            |   |              |   |            |  
|Accounts payable, trade                                                                                                                                         |  | $             | 209,359    |   |              | $ | 222,787    |  
|Current maturities of long-term debt                                                                                                                            |  |               | 19,048     |   |              |   | 4,762      |  
|Accrued expenses and other current liabilities                                                                                                                  |  |               | 171,021    |   |              |   | 222,739    |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|Total current liabilities                                                                                                                                       |  |               | 399,428    |   |              |   | 450,288    |  
|Long-term debt, net of current maturities                                                                                                                       |  |               | 315,059    |   |              |   | 333,960    |  
|Deferred income taxes                                                                                                                                           |  |               | 71,516     |   |              |   | 76,413     |  
|Other long-term liabilities                                                                                                                                     |  |               | 18,999     |   |              |   | 13,959     |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|Total liabilities                                                                                                                                               |  |               | 805,002    |   |              |   | 874,620    |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|Commitments and contingencies (Note 11)                                                                                                                         |  |               |            |   |              |   |            |  
|SHAREHOLDERS EQUITY:                                                                                                                                           |  |               |            |   |              |   |            |  
|Preferred stock, $0.01 par value; 25,000,000 authorized shares; no issued shares                                                                                |  |               |           |   |              |   |           |  
|Common stock, $0.01 par value; 300,000,000 authorized shares; 57,712,773 and 56,503,163 issued shares at September 30, 2010
and December 31, 2009, respectively |  |               | 577        |   |              |   | 565        |  
|                                                                                                                                                                |  |              
|Additional paid-in capital                                                                                                                                      |  |               | 2,445,215  |   |              |   | 2,419,765  |  
|Retained deficit                                                                                                                                                |  |               | (2,018,810 | ) |              |   | (2,076,046 | )
|Accumulated other comprehensive loss                                                                                                                            |  |               |           |   |              |   | (254       | )
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|Total shareholders equity                                                                                                                                      |  |               | 426,982    |   |              |   | 344,030    |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                      |  | $             | 1,231,984  |   |              | $ | 1,218,650  |  
|                                                                                                                                                                |  |               |            |   |              |   |            |  

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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HSN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(In thousands)

(Unaudited)



|                                                              |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  
|------------------------------------------------------------- | ------ | --------------- | - | ------ | ------------ | - | ------ | ------------------------- |  | ------ | ---------------- |  |  | ---------------------------------- | --- |  | ----- | - | --------- |  |  | - | ---------- | - |  | - | ---- | - |  | - | ------- | -
|                                                              |        | Preferred Stock |   |        | Common Stock |   |        | Additional Paid-inCapital |  |        | Retained Deficit |  |  | Accumulated OtherComprehensiveLoss |     |  | Total |  
|                                                              | Shares |                 |   | Amount |              |   | Shares |                           |  | Amount |                  |  |  |                                    |    
|Balance as of December 31, 2008                               |        |                 |  |        |              | $ |       |                           |  |        | 56,222           |  |  | $                                  | 562 |  |       | $ | 2,406,503 |  |  | $ | (2,148,534 | ) |  | $ | (246 | ) |  | $ | 258,285 |  
|Comprehensive income:                                         |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  
|Net income                                                    |        |                 |  |        |              |   |       |                           |  |        |                 |  |  |                                    |    |  |       |   |          |  |  |   | 72,488     |   |  |   |     |   |  |   | 72,488  |  
|Foreign currency translation                                  |        |                 |  |        |              |   |       |                           |  |        |                 |  |  |                                    |    |  |       |   |          |  |  |   |           |   |  |   | (8   | ) |  |   | (8      | )
|                                                              |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  
|Total comprehensive income                                    |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   | 72,480  |  
|Stock-based compensation expense for equity awards            |        |                 |  |        |              |   |       |                           |  |        |                 |  |  |                                    |    |  |       |   | 11,391    |  |  |   |           |   |  |   |     |   |  |   | 11,391  |  
|Adjustment to capitalization as a result of the spin-off      |        |                 |  |        |              |   |       |                           |  |        |                 |  |  |                                    |    |  |       |   | 406       |  |  |   |           |   |  |   |     |   |  |   | 406     |  
|Issuance of common stock from stock-based compensation awards |        |                 |  |        |              |   |       |                           |  |        | 281              |  |  |                                    | 3   |  |       |   | 1,465     |  |  |   |           |   |  |   |     |   |  |   | 1,468   |  
|                                                              |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  
|Balance as of December 31, 2009                               |        |                 |  |        |              |   |       |                           |  |        | 56,503           |  |  |                                    | 565 |  |       |   | 2,419,765 |  |  |   | (2,076,046 | ) |  |   | (254 | ) |  |   | 344,030 |  
|Comprehensive income:                                         |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  
|Net income                                                    |        |                 |  |        |              |   |       |                           |  |        |                 |  |  |                                    |    |  |       |   |          |  |  |   | 57,236     |   |  |   |     |   |  |   | 57,236  |  
|Foreign currency translation                                  |        |                 |  |        |              |   |       |                           |  |        |                 |  |  |                                    |    |  |       |   |          |  |  |   |           |   |  |   | 254  |   |  |   | 254     |  
|                                                              |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  
|Total comprehensive income                                    |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   | 57,490  |  
|Stock-based compensation expense for equity awards            |        |                 |  |        |              |   |       |                           |  |        |                 |  |  |                                    |    |  |       |   | 12,260    |  |  |   |           |   |  |   |     |   |  |   | 12,260  |  
|Issuance of common stock fromstock-based compensation awards  |        |                 |  |        |              |   |       |                           |  |        | 1,210            |  |  |                                    | 12  |  |       |   | 13,190    |  |  |   |           |   |  |   |     |   |  |   | 13,202  |  
|                                                              |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  
|Balance as of September 30, 2010                              |        |                 |  |        |              | $ |       |                           |  |        | 57,713           |  |  | $                                  | 577 |  |       | $ | 2,445,215 |  |  | $ | (2,018,810 | ) |  | $ |     |   |  | $ | 426,982 |  
|                                                              |        |                 |   |        |              |   |        |                           |  |        |                  |  |  |                                    |     |  |       |   |           |  |  |   |            |   |  |   |      |   |  |   |         |  

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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HSN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                               |  | Nine Months Ended September 30, |        
|                                                                                                                                               |  | 2010                            |         |   | 2009 |  
|                                                                                                                                               |  |                                
|Cash flows from operating activities attributable to continuing operations:                                                                    |  |                                 |         |   |      |   |         |  
|Net income                                                                                                                                     |  | $                               | 57,236  |   |      | $ | 33,136  |  
|Less: Loss from discontinued operations, net of tax                                                                                            |  |                                 | (24     | ) |      |   | (69     | )
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Income from continuing operations                                                                                                              |  |                                 | 57,260  |   |      |   | 33,205  |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to
continuing operations: |  |                                 |         |   |      |   |         |  
|Depreciation                                                                                                                                   |  |                                 | 28,986  |   |      |   | 28,510  |  
|Amortization of intangible assets                                                                                                              |  |                                 | 422     |   |      |   | 421     |  
|Stock-based compensation expense                                                                                                               |  |                                 | 15,063  |   |      |   | 8,084   |  
|Amortization of cable and satellite distribution fees                                                                                          |  |                                 | 2,519   |   |      |   | 2,520   |  
|Amortization of debt issuance costs                                                                                                            |  |                                 | 1,929   |   |      |   | 1,915   |  
|Loss on disposition of fixed assets                                                                                                            |  |                                 | 1,208   |   |      |   | 398     |  
|Deferred income taxes                                                                                                                          |  |                                 | (4,777  | ) |      |   | (4,665  | )
|Bad debt expense                                                                                                                               |  |                                 | 12,981  |   |      |   | 11,757  |  
|Excess tax benefits from stock-based awards                                                                                                    |  |                                 | (1,383  | ) |      |   |        |  
|Changes in current assets and liabilities:                                                                                                     |  |                                 |         |   |      |   |         |  
|Accounts receivable                                                                                                                            |  |                                 | 36,763  |   |      |   | 29,079  |  
|Inventories                                                                                                                                    |  |                                 | (76,905 | ) |      |   | 9,490   |  
|Prepaid expenses and other current assets                                                                                                      |  |                                 | (5,156  | ) |      |   | (4,740  | )
|Accounts payable, accrued expenses and other current liabilities                                                                               |  |                                 | (62,740 | ) |      |   | 1,037   |  
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Net cash provided by operating activities attributable to continuing operations                                                                |  |                                 | 6,170   |   |      |   | 117,011 |  
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Cash flows from investing activities attributable to continuing operations:                                                                    |  |                                 |         |   |      |   |         |  
|Capital expenditures                                                                                                                           |  |                                 | (26,153 | ) |      |   | (25,512 | )
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Net cash used in investing activities attributable to continuing operations                                                                    |  |                                 | (26,153 | ) |      |   | (25,512 | )
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Cash flows from financing activities attributable to continuing operations:                                                                    |  |                                 |         |   |      |   |         |  
|Repayment under revolving credit facility                                                                                                      |  |                                 |        |   |      |   | (20,000 | )
|Repayment of long-term debt                                                                                                                    |  |                                 | (4,762  | ) |      |   | (11,250 | )
|Proceeds from issuance of common stock, net of withholding taxes                                                                               |  |                                 | 12,823  |   |      |   |        |  
|Excess tax benefits from stock-based awards                                                                                                    |  |                                 | 1,383   |   |      |   |        |  
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Net cash provided by (used in) financing activities attributable to continuing operations                                                      |  |                                 | 9,444   |   |      |   | (31,250 | )
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Total cash (used in) provided by continuing operations                                                                                         |  |                                 | (10,539 | ) |      |   | 60,249  |  
|Total cash provided by operating activities attributable to discontinued operations                                                            |  |                                 | 4       |   |      |   | 1,028   |  
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                                                                                           |  |                                 | (10,535 | ) |      |   | 61,277  |  
|Cash and cash equivalents at beginning of period                                                                                               |  |                                 | 269,921 |   |      |   | 177,463 |  
|                                                                                                                                               |  |                                 |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                                                                     |  | $                               | 259,386 |   |      | $ | 238,740 |  
|                                                                                                                                               |  |                                 |         |   |      |   |         |  

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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HSN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1ORGANIZATION

Company
Overview

HSN, Inc. (HSNi) is an interactive multi-channel retailer that markets and sells a wide range of
third party and private label merchandise directly to consumers through (i) a television home shopping programming broadcast on the HSN television network; (ii) catalogs, which consist primarily of the Cornerstone portfolio of leading
print catalogs including Frontgate, Garnet Hill, Ballard Designs, Improvements, Smith+Noble, The Territory Ahead and TravelSmith; (iii) websites, which consist primarily of HSN.com and the seven branded websites operated by Cornerstone; and
(iv) retail stores. HSNis television home shopping business and related internet commerce is referred to herein as HSN and all catalog operations, including related internet commerce and retail stores, are collectively
referred to herein as Cornerstone.

HSN offerings primarily consist of jewelry, fashion, beauty &
wellness and home & other. Merchandise offered by Cornerstone primarily consists of home furnishings (including indoor/outdoor furniture, window treatments and other home related goods) and apparel & accessories.

Basis of Presentation

HSNi was incorporated in Delaware in May 2008 in connection with the spin-off of several businesses previously owned by
IAC/InterActiveCorp, or IAC. The spin-off from IAC occurred on August 20, 2008 concurrent with the spin-offs from IAC of Interval Leisure Group, Inc., Ticketmaster Entertainment, Inc., and Tree.com, Inc. Throughout these financial statements,
the separation transaction is referred to as the spin-off and each of these companies as Spincos. Effective August 21, 2008, HSNis shares began trading on the NASDAQ Global Select Market under the symbol
HSNI.

HSNi has accounted for its international subsidiaries as discontinued operations. The results of operations
and cash flows of these subsidiaries have been presented as discontinued operations within the consolidated statements of operations and consolidated statements of cash flows for all periods presented.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (GAAP) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP
for complete financial statements. In the opinion of HSNis management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of
the results that may be expected for a full year. The accompanying unaudited consolidated financial statements should be read in conjunction with HSNis audited consolidated financial statements and notes thereto for the year ended
December 31, 2009. The consolidated balance sheet as of December 31, 2009 and the consolidated statement of shareholders equity for the year ended December 31, 2009 were derived from the audited consolidated financial statements
at that date but may not include all disclosures required by GAAP. Intercompany transactions and accounts have been eliminated in consolidation.

NOTE 2SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

HSNis management is required to make certain estimates and assumptions during the preparation of its consolidated financial
statements in accordance with GAAP. These estimates and assumptions impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact
the reported amount of net earnings during any period. Actual results could differ from those estimates. In the opinion of HSNis management, the assumptions underlying these interim unaudited financial statements are reasonable.

Significant estimates underlying the accompanying consolidated financial statements include: the determination of the lower of cost or
market adjustment for inventory; sales returns and other revenue allowances; the allowance for doubtful accounts; the recoverability of long-lived and intangible assets; the determination of deferred income taxes, including related valuation
allowances; the accrual for actual, pending or threatened litigation, claims and assessments; and assumptions related to the determination of stock-based compensation.



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NOTE 3PROPERTY AND EQUIPMENT

The balance of property and equipment, net, is as follows (in thousands):



|                                                |  |                   |          |   |                  |   |          |  
|----------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                |  | September 30,2010 |          |   | December 31,2009 |  
|Capitalized software                            |  | $                 | 203,526  |   |                  | $ | 190,331  |  
|Computer and broadcast equipment                |  |                   | 94,171   |   |                  |   | 89,001   |  
|Buildings and leasehold improvements            |  |                   | 88,849   |   |                  |   | 81,937   |  
|Furniture and other equipment                   |  |                   | 71,741   |   |                  |   | 66,861   |  
|Projects in progress                            |  |                   | 6,216    |   |                  |   | 13,207   |  
|Land and land improvements                      |  |                   | 10,922   |   |                  |   | 11,847   |  
|                                                |  |                   |          |   |                  |   |          |  
|                                                |  |                   | 475,425  |   |                  |   | 453,184  |  
|Less: accumulated depreciation and amortization |  |                   | (322,354 | ) |                  |   | (296,133 | )
|                                                |  |                   |          |   |                  |   |          |  
|Total property and equipment, net               |  | $                 | 153,071  |   |                  | $ | 157,051  |  
|                                                |  |                   |          |   |                  |   |          |  

NOTE 4SEGMENT INFORMATION

HSNi has determined to represent its operating segments and related financial information in a manner consistent with how the chief operating decision maker and executive management view the businesses,
how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products or services offered or the target market. HSNi has two operating segments, HSN and Cornerstone. Entities included in
discontinued operations are excluded from the schedules below. The accounting policies of the segments are the same as those described in Note 2  Summary of Significant Accounting Policies included in HSNis Annual Report on Form 10-K for
the year ended December 31, 2009. Intercompany accounts and transactions have been eliminated in consolidation.

HSNis primary metric is Adjusted EBITDA, which is defined as operating income excluding, if applicable: (1) non-cash charges
including: (a) stock-based compensation expense, (b) amortization of non-cash marketing, (c) amortization of intangibles, (d) depreciation and gains and losses on asset dispositions, and (e) goodwill, long-lived asset and
intangible asset impairments; (2) pro forma adjustments for significant acquisitions; and (3) one-time items. Adjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered in isolation or as a substitute
for operating income, net income or any other measure determined in accordance with GAAP. Adjusted EBITDA is used as a measurement of operating efficiency and overall financial performance and HSNi believes it to be a helpful measure for those
evaluating companies in the retail and media industries. Adjusted EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. Adjusted EBITDA has certain limitations in that
it does not take into account the impact to HSNis consolidated statements of operations of certain expenses, including stock-based compensation, amortization of non-cash marketing, amortization of intangibles, depreciation, gains and losses on
asset dispositions, asset impairment charges, acquisition-related accounting and one-time items.



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The following tables
reconcile Adjusted EBITDA to operating income (loss) for HSNis operating segments and to HSNis consolidated net income (in thousands):



|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|----------------------------------------------------- |  | ------------------------------------- | ------- | - | ------------------------------------- | - | ------ | ----- |  | - | ------- | - |  | ----------- | ------- | - | ----- | - | ------- | - |  | - | ------- | -
|                                                      |  | Three Months Ended September 30, 2010 |         |   | Three Months Ended September 30, 2009 |  
|                                                      |  | HSN                                   |         |   | Cornerstone                           |   |        | Total |  |   | HSN     |   |  | Cornerstone |         |   | Total |  
|Adjusted EBITDA                                       |  | $                                     | 43,122  |   |                                       | $ | 5,855  |       |  | $ | 48,977  |   |  | $           | 47,061  |   |       | $ | 1,737   |   |  | $ | 48,798  |  
|Stock-based compensation expense                      |  |                                       | (4,057  | ) |                                       |   | (1,696 | )     |  |   | (5,753  | ) |  |             | (2,463  | ) |       |   | (594    | ) |  |   | (3,057  | )
|Amortization of intangible assets                     |  |                                       | (141    | ) |                                       |   |       |       |  |   | (141    | ) |  |             | (140    | ) |       |   |        |   |  |   | (140    | )
|Depreciation                                          |  |                                       | (7,460  | ) |                                       |   | (2,106 | )     |  |   | (9,566  | ) |  |             | (7,253  | ) |       |   | (2,177  | ) |  |   | (9,430  | )
|Loss on disposition of fixed assets                   |  |                                       | (720    | ) |                                       |   |       |       |  |   | (720    | ) |  |             | (61     | ) |       |   | (32     | ) |  |   | (93     | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Operating income (loss)                               |  | $                                     | 30,744  |   |                                       | $ | 2,053  |       |  |   | 32,797  |   |  | $           | 37,144  |   |       | $ | (1,066  | ) |  |   | 36,078  |  
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Other expense, net                                    |  |                                       |         |   |                                       |   |        |       |  |   | (8,089  | ) |  |             |         |   |       |   |         |   |  |   | (8,644  | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Income from continuing operations before income taxes |  |                                       |         |   |                                       |   |        |       |  |   | 24,708  |   |  |             |         |   |       |   |         |   |  |   | 27,434  |  
|Income tax provision                                  |  |                                       |         |   |                                       |   |        |       |  |   | (9,821  | ) |  |             |         |   |       |   |         |   |  |   | (10,849 | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Income from continuing operations                     |  |                                       |         |   |                                       |   |        |       |  |   | 14,887  |   |  |             |         |   |       |   |         |   |  |   | 16,585  |  
|Loss from discontinued operations, net of tax         |  |                                       |         |   |                                       |   |        |       |  |   | (9      | ) |  |             |         |   |       |   |         |   |  |   | (13     | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Net income                                            |  |                                       |         |   |                                       |   |        |       |  | $ | 14,878  |   |  |             |         |   |       |   |         |   |  | $ | 16,572  |  
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|                                                      |  |                                      
|                                                      |  | Nine Months Ended September 30, 2010  |         |   | Nine Months Ended September 30, 2009  |  
|                                                      |  | HSN                                   |         |   | Cornerstone                           |   |        | Total |  |   | HSN     |   |  | Cornerstone |         |   | Total |  
|Adjusted EBITDA                                       |  | $                                     | 138,498 |   |                                       | $ | 25,824 |       |  | $ | 164,322 |   |  | $           | 120,675 |   |       | $ | (2,542  | ) |  | $ | 118,133 |  
|Stock-based compensation expense                      |  |                                       | (10,098 | ) |                                       |   | (4,965 | )     |  |   | (15,063 | ) |  |             | (6,462  | ) |       |   | (1,622  | ) |  |   | (8,084  | )
|Amortization of intangible assets                     |  |                                       | (422    | ) |                                       |   |       |       |  |   | (422    | ) |  |             | (421    | ) |       |   |        |   |  |   | (421    | )
|Depreciation                                          |  |                                       | (22,327 | ) |                                       |   | (6,659 | )     |  |   | (28,986 | ) |  |             | (21,387 | ) |       |   | (7,123  | ) |  |   | (28,510 | )
|Loss on disposition of fixed assets                   |  |                                       | (1,148  | ) |                                       |   | (60    | )     |  |   | (1,208  | ) |  |             | (360    | ) |       |   | (38     | ) |  |   | (398    | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Operating income (loss)                               |  | $                                     | 104,503 |   |                                       | $ | 14,140 |       |  |   | 118,643 |   |  | $           | 92,045  |   |       | $ | (11,325 | ) |  |   | 80,720  |  
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Other expense, net                                    |  |                                       |         |   |                                       |   |        |       |  |   | (24,445 | ) |  |             |         |   |       |   |         |   |  |   | (26,305 | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Income from continuing operations before income taxes |  |                                       |         |   |                                       |   |        |       |  |   | 94,198  |   |  |             |         |   |       |   |         |   |  |   | 54,415  |  
|Income tax provision                                  |  |                                       |         |   |                                       |   |        |       |  |   | (36,938 | ) |  |             |         |   |       |   |         |   |  |   | (21,210 | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Income from continuing operations                     |  |                                       |         |   |                                       |   |        |       |  |   | 57,260  |   |  |             |         |   |       |   |         |   |  |   | 33,205  |  
|Loss from discontinued operations, net of tax         |  |                                       |         |   |                                       |   |        |       |  |   | (24     | ) |  |             |         |   |       |   |         |   |  |   | (69     | )
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  
|Net income                                            |  |                                       |         |   |                                       |   |        |       |  | $ | 57,236  |   |  |             |         |   |       |   |         |   |  | $ | 33,136  |  
|                                                      |  |                                       |         |   |                                       |   |        |       |  |   |         |   |  |             |         |   |       |   |         |   |  |   |         |  

The net sales for each of HSNis reportable segments are as follows (in thousands):



|            |  |                                 |         |  |                                |   |         |      |  |   |           |  |  |   |           | 
|----------- |  | ------------------------------- | ------- |  | ------------------------------ | - | ------- | ---- |  | - | --------- |  |  | - | --------- | 
|            |  | Three Months EndedSeptember 30, |         |  | Nine Months EndedSeptember 30, |  
|            |  | 2010                            |         |  | 2009                           |   |         | 2010 |  |   | 2009      | 
|Net sales:  |  |                                 |         |  |                                |   |         |     
|HSN         |  | $                               | 493,743 |  |                                | $ | 466,973 |      |  | $ | 1,479,073 |  |  | $ | 1,396,128 | 
|Cornerstone |  |                                 | 214,616 |  |                                |   | 174,271 |      |  |   | 602,491   |  |  |   | 514,819   | 
|            |  |                                 |         |  |                                |   |         |      |  |   |           |  |  |   |           | 
|Total       |  | $                               | 708,359 |  |                                | $ | 641,244 |      |  | $ | 2,081,564 |  |  | $ | 1,910,947 | 
|            |  |                                 |         |  |                                |   |         |      |  |   |           |  |  |   |           | 



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NOTE 5COMPREHENSIVE INCOME

Comprehensive income is comprised of (in thousands):



|                                  |  |                                 |        |  |                                |   |        |      |  |   |        |  |  |   |        |  
|--------------------------------- |  | ------------------------------- | ------ |  | ------------------------------ | - | ------ | ---- |  | - | ------ |  |  | - | ------ | -
|                                  |  | Three Months EndedSeptember 30, |        |  | Nine Months EndedSeptember 30, |  
|                                  |  | 2010                            |        |  | 2009                           |   |        | 2010 |  |   | 2009   | 
|Net income                        |  | $                               | 14,878 |  |                                | $ | 16,572 |      |  | $ | 57,236 |  |  | $ | 33,136 |  
|Other comprehensive income (loss) |  |                                 | 182    |  |                                |   | (18    | )    |  |   | 254    |  |  |   | (16    | )
|                                  |  |                                 |        |  |                                |   |        |      |  |   |        |  |  |   |        |  
|Total comprehensive income        |  | $                               | 15,060 |  |                                | $ | 16,554 |      |  | $ | 57,490 |  |  | $ | 33,120 |  
|                                  |  |                                 |        |  |                                |   |        |      |  |   |        |  |  |   |        |  

Accumulated other comprehensive loss included in the consolidated balance sheets at December 31, 2009
is solely related to foreign currency translation and is recorded net of tax.

NOTE 6STOCK-BASED AWARDS

The Second Amended and Restated 2008 Stock and Annual Incentive Plan, as amended (the Plan), authorizes the issuance of
8.0 million shares of HSNi common stock for new awards granted by HSNi. As of September 30, 2010, there were approximately 3.3 million shares of common stock available for grants under the Plan. The purpose of the Plan is to assist
HSNi in attracting, retaining and motivating officers, employees, directors and consultants, and to provide HSNi with the ability to provide incentives more directly linked to the profitability of HSNis business and increases in shareholder
value.

HSNi can grant restricted stock units (RSUs), stock options, stock appreciation rights (SARs)
and other stock-based awards under the Plan. Stock-based awards have a maximum term of 10 years. The exercise price of options and SARs granted under the Plan are required to be priced at or above the fair market value of HSNis stock on the
date of grant.

During the nine months ended September 30, 2010, HSNi granted approximately 654,000 RSUs and 507,000
stock-settled SARs. The RSUs have a weighted average fair value of $23.27 and they primarily vest over three years. The stock-settled SARs have a weighted average exercise price of $20.30, have a fair value of $8.79 and primarily vest ratably over
three years. The following are the assumptions used in the Black-Scholes option pricing model to value SARs for the nine months ended September 30, 2010: volatility factor of 46.51%, risk-free interest rate of 2.39%, expected term of 5 years
and a dividend yield of zero.

Additionally, during the first quarter of 2010, HSNi implemented a performance-based equity
compensation program for certain key members of Cornerstones management. The amount payable is based on the extent to which certain pre-established performance goals for Cornerstone are achieved during the three-year period ending
December 31, 2012. The amount earned pursuant to the award will be measured at the end of the requisite service period and is expected to be settled in shares of HSNi common stock. These equity awards are accounted for as liabilities which are
remeasured each reporting period based on the probability of achievement of the performance conditions. As of September 30, 2010, a liability of approximately $2.8 million was recorded for these awards.

Stock-based compensation expense is included in the following line items in the accompanying consolidated statements of operations (in
thousands):



|                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                     |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                     |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009   |  
|Selling and marketing                                |  | $                               | 783    |   |                                | $ | 513    |      |  | $ | 2,261  |   |  | $ | 1,374  |  
|General and administrative                           |  |                                 | 4,694  |   |                                |   | 2,354  |      |  |   | 12,050 |   |  |   | 6,213  |  
|Production and programming                           |  |                                 | 276    |   |                                |   | 190    |      |  |   | 752    |   |  |   | 497    |  
|                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Stock-based compensation expense before income taxes |  |                                 | 5,753  |   |                                |   | 3,057  |      |  |   | 15,063 |   |  |   | 8,084  |  
|Income tax benefit                                   |  |                                 | (1,896 | ) |                                |   | (1,216 | )    |  |   | (5,293 | ) |  |   | (3,146 | )
|                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Stock-based compensation expense after income taxes  |  | $                               | 3,857  |   |                                | $ | 1,841  |      |  | $ | 9,770  |   |  | $ | 4,938  |  
|                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  



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As of
September 30, 2010, there was approximately $25.3 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is currently expected to be recognized over a weighted average period of
approximately 1.9 years.

NOTE 7INCOME TAXES

HSNi calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, HSNi makes its best estimate of the
annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax
effect are individually computed and recognized in the interim period in which those items occur.

In addition, the effect of
changes in enacted tax laws or rates, tax status, or judgment on the realizability of a beginning-of-the-year deferred tax asset in future years is recognized in the interim period in which the change occurs.

The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including,
but not limited to, the expected operating income for the year, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for
income taxes may change as new events occur, more experience is acquired, additional information is obtained or the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the
change on prior quarters is included in tax expense for the current quarter.

For the three and nine months ended
September 30, 2010, HSNi recorded a tax provision from continuing operations of $9.8 million and $36.9 million, respectively, which represents effective tax rates of 39.7% and 39.2%, respectively. For the three and nine months ended
September 30, 2009, HSNi recorded a tax provision from continuing operations of $10.8 million and $21.2 million, respectively, which represents effective tax rates of 39.5% and 39.0%, respectively. The effective tax rates exceed the
federal statutory rate of 35.0% due principally to state income taxes.

In connection with the spin-off, HSNi entered into a
Tax Sharing Agreement with IAC in which, among other things, each of the Spincos has indemnified IAC and the other Spincos for any taxes resulting from the spin-off of such Spinco (and any related interest, penalties, legal and professional fees,
and all costs and damages associated with related shareholder litigation or controversies) to the extent such amounts result from (i) any act or failure to act by such Spinco described in the covenants in the Tax Sharing Agreement,
(ii) any acquisition of equity securities or assets of such Spinco or a member of its group, and (iii) any breach by such Spinco or any member of its group of any representation or covenant contained in the separation documents or in the
documents relating to the Internal Revenue Service (IRS) private letter ruling and/or tax opinions. Additionally, under the Tax Sharing Agreement, with respect to the consolidated federal income tax return of IAC and its subsidiaries for
any taxable year that includes HSNi, IAC shall determine in its sole discretion whether to elect ratable allocation under applicable U.S. Treasury Regulations. HSNi shall, and shall cause each member of its group to, take all actions necessary to
give effect to such election. In the event an adjustment with respect to a pre-spin-off period for which IAC is responsible results in a tax benefit to HSNi in a post-spin-off period, HSNi will be required to pay such tax benefit to IAC. In general,
IAC controls all audits and administrative matters and other tax proceedings relating to the consolidated federal income tax return of the IAC group and any other tax returns for which the IAC group is responsible. The provisions set forth in the
Tax Sharing Agreement could subject HSNi to future tax contingencies.

HSNi is routinely under audit by federal, state, local
and foreign tax authorities. These audits include questioning the timing and the amount of deductions and the allocation of income among various tax jurisdictions. Income taxes payable include amounts considered sufficient to pay assessments that
may result from examination of prior year returns; however, the amount paid upon resolution of issues raised may differ from the amount provided. Differences between the reserves for tax contingencies and the amounts owed by HSNi are recorded in the
period they become known.

The IRS is currently examining the IAC consolidated tax returns for the years ended
December 31, 2001 through 2006, which includes the operations of HSNi. The statute of limitations for these years has been extended to December 31, 2011. Various IAC consolidated tax returns filed with state, local and foreign
jurisdictions are currently under examination, the most significant of which are California, New York and New York City, for various tax years after December 31, 2003. These examinations are expected to be completed by 2011. By virtue of the
Tax Sharing Agreement with IAC, HSNi is indemnified with respect to additional tax liabilities for consolidated or combined federal tax returns prepared and filed by IAC prior to the spin-off, but is liable for any additional tax liabilities for
HSNi separately filed state income tax returns.



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NOTE 8EARNINGS PER SHARE

HSNi computes basic earnings per share using the weighted average number of common shares outstanding for the period. HSNi
computes diluted earnings per share using the treasury stock method or as if converted method, as applicable, which includes the weighted average number of common shares outstanding for the period plus the potential dilution that could occur if
various equity awards to issue common stock were exercised or restricted equity awards were vested resulting in the issuance of common stock that could share in HSNis earnings.

The following table presents HSNis basic and diluted earnings per share (in thousands, except per share data):



|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                                                                                 |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                                                                                                                                                 |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009   |  
|Net income:                                                                                                                                                                                      |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                                                                                                                                                            |  | $                               | 14,887 |   |                                | $ | 16,585 |      |  | $ | 57,260 |   |  | $ | 33,205 |  
|Discontinued operations                                                                                                                                                                          |  |                                 | (9     | ) |                                |   | (13    | )    |  |   | (24    | ) |  |   | (69    | )
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                                                                                                                       |  | $                               | 14,878 |   |                                | $ | 16,572 |      |  | $ | 57,236 |   |  | $ | 33,136 |  
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                                                                                                                 |  |                                 |        |  
|Weighted average number of shares outstanding:                                                                                                                                                   |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                                                                                                                            |  |                                 | 57,607 |   |                                |   | 56,391 |      |  |   | 57,279 |   |  |   | 56,362 |  
|Dilutive effect of stock-based compensation awards                                                                                                                                               |  |                                 | 2,117  |   |                                |   | 1,111  |      |  |   | 2,124  |   |  |   | 789    |  
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                                                                                                                          |  |                                 | 59,724 |   |                                |   | 57,502 |      |  |   | 59,403 |   |  |   | 57,151 |  
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                                                                                                                 |  |                                 |        |  
|Net income per share - basic:                                                                                                                                                                    |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                                                                                                                                                            |  | $                               | 0.26   |   |                                | $ | 0.29   |      |  | $ | 1.00   |   |  | $ | 0.59   |  
|Discontinued operations                                                                                                                                                                          |  |                                 | (0.00  | ) |                                |   | (0.00  | )    |  |   | (0.00  | ) |  |   | (0.00  | )
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                                                                                                                       |  | $                               | 0.26   |   |                                | $ | 0.29   |      |  | $ | 1.00   |   |  | $ | 0.59   |  
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                                                                                                                 |  |                                 |        |  
|Net income per share - diluted:                                                                                                                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Continuing operations                                                                                                                                                                            |  | $                               | 0.25   |   |                                | $ | 0.29   |      |  | $ | 0.96   |   |  | $ | 0.58   |  
|Discontinued operations                                                                                                                                                                          |  |                                 | (0.00  | ) |                                |   | (0.00  | )    |  |   | (0.00  | ) |  |   | (0.00  | )
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                                                                                                                       |  | $                               | 0.25   |   |                                | $ | 0.29   |      |  | $ | 0.96   |   |  | $ | 0.58   |  
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                                                                                                                 |  |                                 |        |  
|Unexercised employee stock options and stock appreciation rights and unvested restricted stock units excluded from the diluted
EPS calculation because their effect would have been antidilutive |  |                                 | 1,577  |   |                                |   | 4,861  |      |  |   | 1,835  |   |  |   | 5,386  |  
|                                                                                                                                                                                                 |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  



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NOTE 9LONG-TERM DEBT

The balance of long-term debt, including current maturities, is as follows (in thousands):



|                                                                                                                           |  |                   |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                           |  | September 30,2010 |         |   | December 31,2009 |  
|Secured credit agreement expiring July 25, 2013:                                                                           |  |                   |         |   |                  |   |         |  
|Term loan                                                                                                                  |  | $                 | 95,238  |   |                  | $ | 100,000 |  
|Revolving credit facility                                                                                                  |  |                   |        |   |                  |   |        |  
|11.25% Senior Notes due August 1, 2016; interest payable each February 1st and August 1st which commenced
February 1, 2009 |  |                   | 240,000 |   |                  |   | 240,000 |  
|Unamortized original issue discount on Senior Notes                                                                        |  |                   | (1,131  | ) |                  |   | (1,278  | )
|                                                                                                                           |  |                   |         |   |                  |   |         |  
|Total long-term debt                                                                                                       |  |                   | 334,107 |   |                  |   | 338,722 |  
|Less: current maturities                                                                                                   |  |                   | (19,048 | ) |                  |   | (4,762  | )
|                                                                                                                           |  |                   |         |   |                  |   |         |  
|Long-term debt, net of current maturities                                                                                  |  | $                 | 315,059 |   |                  | $ | 333,960 |  
|                                                                                                                           |  |                   |         |   |                  |   |         |  

On July 25, 2008, HSNi entered into a secured credit agreement with a syndicate of banks relating to a
$150 million term loan and a $150 million revolving credit facility, each having a five-year maturity. Certain HSNi subsidiaries have unconditionally guaranteed HSNis obligations under the credit agreement, which is secured by
substantially all of HSNis assets. The credit agreement bears interest based on HSNis financial leverage and, as of September 30, 2010, the term loan interest rate was equal to LIBOR plus 2.00% (2.26%). The credit agreement contains
two principal financial covenants consisting of a maximum leverage ratio of 2.75x and a minimum interest coverage ratio of 3.00x, among other covenants. HSNi was in compliance with all such covenants as of September 30, 2010, with a leverage
ratio of 1.33x and an interest coverage ratio of 8.25x. The amount available to HSNi under the credit agreement is reduced by the amount of commercial and standby letters of credit issued under the revolving credit facility portion of the agreement.
As of September 30, 2010, there were $39.0 million of outstanding commercial and standby letters of credit issued under the revolving credit facility. The ability to draw funds under the revolving credit facility is dependent upon meeting
the aforementioned financial covenants, which may limit HSNis ability to draw the full amount of the facility. As of September 30, 2010, the additional amount that could be borrowed under the revolving credit facility, in consideration of
the financial covenants and outstanding letters of credit, was approximately $111.0 million. HSNi capitalized $7.3 million in financing costs related to the credit agreement and will amortize these costs to interest expense over the credit
agreements five-year life. The annual fee to maintain the revolving credit facility is 50 basis points on the revolving credit facility portion of the credit agreement.

On July 28, 2008, HSNi issued $240 million of 11.25% senior notes due 2016 (the Senior Notes). The Senior Notes are unsecured and subordinated to all of HSNis secured debt. The
Senior Notes were issued at a discount of $1.6 million which, along with other issuance expenses of $7.3 million, are being amortized to interest expense over the eight-year term of the Senior Notes.

NOTE 10FAIR VALUE MEASUREMENTS

Fair value accounting, as prescribed by GAAP, defines fair value and establishes a framework for measuring fair value based on a three-level hierarchy:

Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3Valuations based on unobservable inputs reflecting HSNis own assumptions, consistent with reasonably available
assumptions made by other market participants. These valuations require significant judgment.



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The carrying amounts
of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these items. The following table summarizes the fair value of HSNis financial assets and liabilities which are
carried at cost (in millions):



|             |  |                    |         |  |           |         |       |                                 |         |   |       |  |  |   |   |  |  |   |      | 
|------------ |  | ------------------ | ------- |  | --------- | ------- | ----- | ------------------------------- | ------- | - | ----- |  |  | - | - |  |  | - | ---- | 
|             |  | September 30, 2010 |        
|             |  | CarryingValue      |         |  | FairValue |         |       | Fair Value Measurement Category |        
|             |  |                    | Level 1 |  |           | Level 2 |       |                                 | Level 3 |  
|Senior Notes |  | $                  | 240.0   |  |           | $       | 273.6 |                                 |         | $ | 273.6 |  |  | $ |  |  |  | $ |     | 
|Term Loan    |  |                    | 95.2    |  |           |         | 95.2  |                                 |         |   |      |  |  |   |  |  |  |   | 95.2 | 
|             | 
|             |  | December 31, 2009  |        
|             |  | CarryingValue      |         |  | FairValue |         |       | Fair Value Measurement Category |        
|             |  |                    | Level 1 |  |           | Level 2 |       |                                 | Level 3 |  
|Senior Notes |  | $                  | 240.0   |  |           | $       | 264.0 |                                 |         | $ | 264.0 |  |  | $ |  |  |  | $ |     | 
|Term Loan    |  |                    | 100.0   |  |           |         | 96.1  |                                 |         |   |      |  |  |   |  |  |  |   | 96.1 | 

The fair value of the
Senior Notes was based upon quoted market information (level 1 criteria) and the fair value of the term loan was based upon discounted cash flows (level 3 criteria).

HSNi measures certain assets, such as intangible assets and property and equipment, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired.
During the nine months ended September 30, 2010 and 2009, there were no assets that were required to be recorded at fair value as no impairment indicators were present.

NOTE 11COMMITMENTS AND CONTINGENCIES

In January 2010, one of
HSNis subsidiaries received a preliminary assessment notification from a state alleging that the subsidiary was required to collect and remit sales taxes for the period from September 2002 through August 2009. In October 2010, the state
presented the subsidiary with a notice of determination relating to this matter. HSNi does not believe that its subsidiary was obligated to collect and remit these taxes, and intends to vigorously defend its position. At this time, no assurances can
be given as to the outcome, nor can a reasonable estimate of a liability, if any, be made.

In the ordinary course of
business, HSNi is a party to various audits and lawsuits. These audits or litigation may relate to claims involving property, personal injury, contract, intellectual property (including patent infringement), sales tax, regulatory compliance and
other claims. HSNi establishes reserves for specific legal or tax compliance matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other
legal matters where it believes an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that an unfavorable resolution of claims against HSNi, including claims where an unfavorable
outcome is reasonably possible, will not have a material impact on its liquidity, results of operations, financial condition or cash flows, these matters are subject to inherent uncertainties and managements view of these matters may change in
the future and an unfavorable resolution of such a proceeding could have such a material impact. Moreover, any claims or regulatory actions against HSNi, whether meritorious or not, could be time-consuming, result in costly litigation, require
significant amounts of management time and result in the diversion of significant operational resources.

HSNi also evaluates
other contingent matters, including tax contingencies, to assess the probability and estimated extent of potential loss. See Note 7 for discussion related to income tax contingencies.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Cautionary Statement Regarding Forward-Looking Information

This quarterly
report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934,
as amended, (the Exchange Act), which are based on managements exercise of business judgment, as well as assumptions made by and information currently available to management. When used in this document, the words may,
will, anticipate, believe, estimate, expect, intend, and words of similar import, are intended to identify forward-looking statements. These forward-looking statements include,
among other things, statements relating to the following: HSNis future financial performance, HSNis business prospects and strategy, anticipated trends and prospects in the various markets in which HSNis businesses operate and
other similar matters. These forward-looking statements relate to expectations concerning matters that are not historical fact and are based on managements current expectations and assumptions about future events, which are inherently subject
to uncertainties, risks and changes in circumstances that are difficult to predict. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance.

Should one or more of these uncertainties, risks or changes in circumstances materialize, or should underlying assumptions prove
incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to the following: the impact of the continued
macroeconomic environment on consumer confidence and spending levels; whether national economic stimulus initiatives and measures to stabilize financial institutions and the economy will be successful in achieving their objectives within the
expected timeframes; other changes in political, business and economic conditions, particularly those that affect consumer confidence, consumer spending or internet growth; any technological or regulatory developments that could negatively impact
the way we do business; changes in the interest rate environment and developments in the overall credit markets; HSNis business prospects and strategy, including whether HSNis initiatives will be effective; changes in our relationships
with pay television operators, vendors, manufacturers and other third parties; the loss of any key member of our senior management team; our ability to offer new or alternative products and services in a cost effective manner and consumer acceptance
of these products and services; and changes in product delivery costs. Certain of these and other risks and uncertainties are discussed in HSNis filings with the SEC, including the Risk Factors section in our Annual Report on Form
10-K filed with the SEC on March 4, 2010. Other unknown or unpredictable factors that could also adversely affect HSNis business, financial condition and results of operations may arise from time to time.

You should not place undue reliance on these forward-looking statements. Such forward-looking statements speak only to the date such
statements are made and we do not undertake to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated
events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Historical results should not be considered an indication of future performance.

Results of Operations

Net Sales

Net sales primarily relate to the sale of merchandise and are reduced by incentive discounts and actual and estimated sales returns.
Revenue is recorded when delivery to the customer has occurred. Delivery is considered to have occurred when the customer takes title and assumes the risks and rewards of ownership, which is generally on the date of shipment. HSNis sales
policies allow customers to return virtually all merchandise for a full refund or exchange, subject to pre-established time restrictions and, in some cases, restocking fees.



|                |  |                                  |         |  |                                 |     |      |   |         |      |  |   |           |  |      |     |  |   |           | 
|--------------- |  | -------------------------------- | ------- |  | ------------------------------- | --- | ---- | - | ------- | ---- |  | - | --------- |  | ---- | --- |  | - | --------- | 
|                |  | Three Months Ended September 30, |         |  | Nine Months Ended September 30, |    
|                |  | 2010                             |         |  | %Change                         |     | 2009 |   |         | 2010 |  |   | %Change   |  | 2009 |    
|                |  | (Dollars in thousands)           |         |  | (Dollars in thousands)          |    
|HSN             |  | $                                | 493,743 |  |                                 | 6%  |      | $ | 466,973 |      |  | $ | 1,479,073 |  |      | 6%  |  | $ | 1,396,128 | 
|Cornerstone     |  |                                  | 214,616 |  |                                 | 23% |      |   | 174,271 |      |  |   | 602,491   |  |      | 17% |  |   | 514,819   | 
|                |  |                                  |         |  |                                 |     |      |   |         |      |  |   |           |  |      |     |  |   |           | 
|Total net sales |  | $                                | 708,359 |  |                                 | 10% |      | $ | 641,244 |      |  | $ | 2,081,564 |  |      | 9%  |  | $ | 1,910,947 | 
|                |  |                                  |         |  |                                 |     |      |   |         |      |  |   |           |  |      |     |  |   |           | 

HSNi net sales for the three months ended September 30, 2010 increased 10%, or $67.1 million, as
compared to the prior year due to a 6% increase at HSN and a 23% increase at Cornerstone. The number of units shipped in the third quarter of



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2010 increased 6% to 13.1 million as compared to 12.3 million in the prior year and the average price point increased to $60.25 as compared to $58.35 in the prior year. Internet sales
as a percentage of total net sales for the quarter represented 38.8% of HSNi net sales compared to 37.2% in the prior year.

HSNi net sales for the nine months ended September 30, 2010 increased 9%, or $170.6 million, as compared to the same period in 2009
due to a 6% increase at HSN and a 17% increase at Cornerstone. The number of units shipped for the nine months ended September 30, 2010 increased 7% to 38.5 million from 36.0 million and the average price point increased 2% to $60.19
from $59.13. Internet sales as a percentage of total net sales grew in 2010 representing 38.3% of HSNi net sales as compared to 36.6% in the prior year.

HSN

HSN merchandise categories primarily consist of jewelry,
fashion (including apparel & accessories), beauty & wellness and home & other (including housewares, home fashions, electronics, fitness and other). Divisional product mix at HSN is provided in the table below:



|                                |  |                                  |       |   |                                 |  |       |      |  |  |       |   |  |  |       |  
|------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                |  | Three Months 
EndedSeptember 30, |       |   | Nine Months 
EndedSeptember 30, | 
|                                |  | 2010                             |       |   | 2009                            |  |       | 2010 |  |  | 2009  |  
|Jewelry                         |  |                                  | 16.3  | % |                                 |  | 17.0  | %    |  |  | 15.4  | % |  |  | 16.5  | %
|Fashion (apparel & accessories) |  |                                  | 15.2  | % |                                 |  | 12.4  | %    |  |  | 13.9  | % |  |  | 11.4  | %
|Beauty & wellness               |  |                                  | 18.0  | % |                                 |  | 19.0  | %    |  |  | 19.2  | % |  |  | 19.4  | %
|Home & other                    |  |                                  | 50.5  | % |                                 |  | 51.6  | %    |  |  | 51.5  | % |  |  | 52.7  | %
|                                |  |                                  |       |   |                                 |  |       |      |  |  |       |   |  |  |       |  
|Total                           |  |                                  | 100.0 | % |                                 |  | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | %
|                                |  |                                  |       |   |                                 |  |       |      |  |  |       |   |  |  |       |  

Net sales for HSN for the third quarter of 2010 increased 6% to $493.7 million compared to $467.0 million in
the prior year. The sales growth was driven by strong performances in fashion and electronics. HSN.com sales increased 10% over the prior year and represented 30.9% of HSNs net sales, up from 29.8% in the prior year. HSNs units shipped
and average price point increased 3% and 2%, respectively.

Net sales for HSN for the nine months ended September 30,
2010 increased 6% to $1,479.1 million from $1,396.1 million in the prior year. The sales growth was driven by strong performances in fashion, electronics and wellness. Shipped units increased by 5% and the average price point increased by 1% to
$57.96 compared to the same period in the prior year. HSN.com net sales grew 12% over the prior year representing 31.0% of HSNs total net sales, up from 29.4% in the prior year.

Cornerstone

Net sales for Cornerstone for the third quarter of 2010 increased 23% to $214.6 million compared to $174.3 million in the prior year. The sales growth is attributable to an increase in demand for luxury
and outdoor products, the execution of strategic merchandising and marketing initiatives and our investment in catalog circulation in Cornerstones three largest brands, Frontgate, Ballard Designs and Garnet Hill. The number of units shipped
increased 18% and the average price point increased 5% to $67.22 compared to the prior year. Internet sales penetration remained consistent compared to prior year and represents 56.9% of Cornerstones net sales. The return rate increased to
15.9% from 14.2% primarily due to a $2.5 million estimate recorded for an upcoming voluntary product recall.

Net sales for
Cornerstone for the nine months ended September 30, 2010 increased 17% to $602.5 million compared to $514.8 million in the prior year. As discussed previously, the increase is attributable to the increase in consumer demand for luxury and
outdoor products, the execution of strategic merchandising and marketing initiatives and our investment in catalog circulation in Cornerstones three largest brands, Frontgate, Ballard Designs and Garnet Hill. The average price point and units
shipped increased 2% and 13%, respectively, in the first three quarters of 2010 as compared to the prior year. Internet sales represented 56.3% of net sales in 2010 as compared to 56.0% in 2009.



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Cost of Sales and
Gross Profit

Cost of sales consists primarily of the cost of products sold, shipping and handling costs, compensation and
other employee-related costs (including stock-based compensation) for personnel engaged in warehouse functions and certain warehousing and fulfillment costs.



|                                |  |                                  |         |   |                                 |          |      |   |         |      |  |   |          |   |      |         |  |   |         |  
|------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | -------- | ---- | - | ------- | ---- |  | - | -------- | - | ---- | ------- |  | - | ------- | -
|                                |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |         
|                                |  | 2010                             |         |   | % Change                        |          | 2009 |   |         | 2010 |  |   | % Change |   | 2009 |        
|Gross profit:                   |  | (Dollars in thousands)           |         |   | (Dollars in thousands)          |         
|HSN                             |  | $                                | 169,935 |   |                                 | 1%       |      | $ | 168,622 |      |  | $ | 503,733  |   |      | 6%      |  | $ | 473,364 |  
|HSN gross profit margin         |  |                                  | 34.4    | % |                                 | (170 bp) |      |   | 36.1    | %    |  |   | 34.1     | % |      | 20 bp   |  |   | 33.9    | %
|Cornerstone                     |  | $                                | 79,792  |   |                                 | 17%      |      | $ | 68,446  |      |  | $ | 241,138  |   |      | 17%     |  | $ | 206,799 |  
|Cornerstone gross profit margin |  |                                  | 37.2    | % |                                 | (210 bp) |      |   | 39.3    | %    |  |   | 40.0     | % |      | (20 bp) |  |   | 40.2    | %
|HSNi                            |  | $                                | 249,727 |   |                                 | 5%       |      | $ | 237,068 |      |  | $ | 744,871  |   |      | 10%     |  | $ | 680,163 |  
|HSNi gross profit margin        |  |                                  | 35.3    | % |                                 | (170 bp) |      |   | 37.0    | %    |  |   | 35.8     | % |      | 20 bp   |  |   | 35.6    | %



bp = basis points

HSN

Gross profit for HSN for the third quarter of 2010 increased 1% to $169.9 million compared to $168.6 million in the prior year. Gross profit margin declined 170 basis points to 34.4% compared to 36.1% in
the prior year. The decline in gross profit margin was primarily driven by increased product costs, retail price reductions and an increase in our inventory reserve provisions. In addition, in the third quarter of 2009, HSN benefited from a
reduction in inventories and the related reserves.

Gross profit for HSN for the nine months ended September 30, 2010
increased 6% to $503.7 million from $473.4 million in the prior year. Gross profit margin improved 20 basis points to 34.1% from 33.9% in the prior year. The slight improvement in gross profit margin was mainly driven by improved product margins due
to less promotional activity, partially offset by an increase in shipping costs.

Cornerstone

Gross profit for Cornerstone increased 17% to $79.8 million in the third quarter of 2010 compared to $68.4 million in the prior year.
Gross profit margin declined 210 basis points to 37.2% from 39.3% in the prior year. The margin decline was primarily attributable to increased product costs, shipping costs associated with rate increases on larger package deliveries and a $2.5
million sales provision for an upcoming voluntary product recall, partially offset by leverage over fixed warehousing costs.

Gross profit for Cornerstone for the nine months ended September 30, 2010 increased 17% to $241.1 million compared to $206.8 million
in the prior year. Gross profit margin declined 20 basis points to 40.0% from 40.2%. The slight margin decline was primarily attributable to increased shipping costs associated with rate increases on larger package deliveries, partially offset by
leverage over warehousing costs due to the revenue growth and warehouse efficiencies.



17



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Selling and
Marketing Expense

Selling and marketing expense consists primarily of advertising and promotional expenditures,
compensation and other employee-related costs (including stock-based compensation) for personnel engaged in customer service, sales and merchandising functions and on-air distribution costs. Advertising and promotional expenditures primarily include
catalog production and distribution costs and online marketing, including fees paid to search engines and third party distribution partners.



|                                         |  |                                  |         |   |                                 |          |      |   |         |      |  |   |          |   |      |          |  |   |         |  
|---------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | -------- | ---- | - | ------- | ---- |  | - | -------- | - | ---- | -------- |  | - | ------- | -
|                                         |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |         
|                                         |  | 2010                             |         |   | % Change                        |          | 2009 |   |         | 2010 |  |   | % Change |   | 2009 |         
|                                         |  | (Dollars in thousands)           |         |   | (Dollars in thousands)          |         
|HSN                                      |  | $                                | 72,849  |   |                                 | 4%       |      | $ | 69,758  |      |  | $ | 210,517  |   |      | 4%       |  | $ | 201,798 |  
|As a percentage of HSN net sales         |  |                                  | 14.8    | % |                                 | (10 bp)  |      |   | 14.9    | %    |  |   | 14.2     | % |      | (30 bp)  |  |   | 14.5    | %
|Cornerstone                              |  | $                                | 59,555  |   |                                 | 16%      |      | $ | 51,239  |      |  | $ | 172,382  |   |      | 4%       |  | $ | 166,111 |  
|As a percentage of Cornerstone net sales |  |                                  | 27.7    | % |                                 | (170 bp) |      |   | 29.4    | %    |  |   | 28.6     | % |      | (370 bp) |  |   | 32.3    | %
|HSNi                                     |  | $                                | 132,404 |   |                                 | 9%       |      | $ | 120,997 |      |  | $ | 382,899  |   |      | 4%       |  | $ | 367,909 |  
|As a percentage of HSNi net sales        |  |                                  | 18.7    | % |                                 | (20 bp)  |      |   | 18.9    | %    |  |   | 18.4     | % |      | (90 bp)  |  |   | 19.3    | %

HSNis selling and
marketing expense for the third quarter of 2010 increased $11.4 million to $132.4 million and represents 18.7% of net sales as compared to 18.9% in the prior year. The increase in expense is primarily due to an increase in Cornerstones
catalog costs associated with a 14% increase in circulation, the costs associated with HSN2, HSNs second television shopping channel that debuted in August, an increase in compensation and other employee-related costs due to increased
headcount and other costs for brand and event marketing at HSN.

HSNis selling and marketing expense for the nine months
ended September 30, 2010 increased $15.0 million to $382.9 million and represents 18.4% of net sales as compared to 19.3% in the prior year. The increase in the expense is primarily due to an increase in compensation and other employee-related
costs due to increased headcount, an increase in HSNs on-air distribution costs, catalog costs associated with Cornerstones 9% increase in circulation and other costs for brand and event marketing at HSN. The increase in on-air
distribution costs is primarily due to HSN2, HSNs second television shopping channel that debuted in August, and additional subscribers in certain markets.



18



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General and
Administrative Expense

General and administrative expense consists primarily of compensation and other employee-related
costs (including stock-based compensation) for personnel engaged in finance, legal, tax, human resources, information technology and executive management functions, bad debts, facilities costs and fees for professional services.



|                                         |  |                                  |        |   |                                 |          |      |   |        |      |  |   |          |   |      |         |  |   |         |  
|---------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -------- | ---- | - | ------ | ---- |  | - | -------- | - | ---- | ------- |  | - | ------- | -
|                                         |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |         
|                                         |  | 2010                             |        |   | % Change                        |          | 2009 |   |        | 2010 |  |   | % Change |   | 2009 |        
|                                         |  | (Dollars in thousands)           |        |   | (Dollars in thousands)          |         
|HSN                                      |  | $                                | 42,576 |   |                                 | 8%       |      | $ | 39,405 |      |  | $ | 121,267  |   |      | 5%      |  | $ | 115,330 |  
|As a percentage of HSN net sales         |  |                                  | 8.6    | % |                                 | 20 bp    |      |   | 8.4    | %    |  |   | 8.2      | % |      | (10 bp) |  |   | 8.3     | %
|Cornerstone                              |  | $                                | 16,078 |   |                                 | (0%)     |      | $ | 16,096 |      |  | $ | 47,957   |   |      | 7%      |  | $ | 44,890  |  
|As a percentage of Cornerstone net sales |  |                                  | 7.5    | % |                                 | (170 bp) |      |   | 9.2    | %    |  |   | 8.0      | % |      | (70 bp) |  |   | 8.7     | %
|HSNi                                     |  | $                                | 58,654 |   |                                 | 6%       |      | $ | 55,501 |      |  | $ | 169,224  |   |      | 6%      |  | $ | 160,220 |  
|As a percentage of HSNi net sales        |  |                                  | 8.3    | % |                                 | (40 bp)  |      |   | 8.7    | %    |  |   | 8.1      | % |      | (30 bp) |  |   | 8.4     | %

HSNis general and
administrative expense for the third quarter of 2010 increased 6% to $58.7 million compared to $55.5 million in the prior year. As a percentage of HSNis net sales, general and administrative expense was 8.3% for the three months ended
September 30, 2010 compared to 8.7% in the prior year. The increase in expense is primarily attributable to costs related to a $2.5 million legal settlement and stock-based compensation, partially offset by a reduction in compensation expense
related to performance-driven incentives.

HSNis general and administrative expense for the nine months ended
September 30, 2010 increased 6% to $169.2 million compared to $160.2 million in the prior year. As a percentage of HSNis net sales, general and administrative expense was 8.1% for the nine months ended September 30, 2010 compared to
8.4% in the prior year. The increase in expense is primarily due to stock-based compensation and costs related to the $2.5 million legal settlement.

Production and Programming Expense

Production and programming expense
includes costs related to the production of HSNs television network. These costs consist primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in production and programming at
HSN. Expenses associated with on-air distribution of HSN, including expenses relating to pay television operators, are included in selling and marketing expense.



|                                   |  |                                  |        |   |                                 |       |      |   |        |      |  |   |          |   |      |      |  |   |        |  
|---------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | ----- | ---- | - | ------ | ---- |  | - | -------- | - | ---- | ---- |  | - | ------ | -
|                                   |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |      
|                                   |  | 2010                             |        |   | % Change                        |       | 2009 |   |        | 2010 |  |   | % Change |   | 2009 |     
|                                   |  | (Dollars in thousands)           |        |   | (Dollars in thousands)          |      
|Production and programming expense |  | $                                | 16,165 |   |                                 | 8%    |      | $ | 14,922 |      |  | $ | 44,697   |   |      | 5%   |  | $ | 42,383 |  
|As a percentage of HSN net sales   |  |                                  | 3.3    | % |                                 | 10 bp |      |   | 3.2    | %    |  |   | 3.0      | % |      | 0 bp |  |   | 3.0    | %

Production and programming
expense for the third quarter of 2010 increased 8% to $16.2 million compared to $14.9 million in the prior year. As a percentage of HSNs net sales, production and programming expense was 3.3% for the three months ended September 30, 2010
compared to 3.2% in the prior year.

Production and programming expense for the nine months ended September 30, 2010
increased 5% to $44.7 million compared to $42.4 million in the prior year. As a percentage of HSNs net sales, production and programming expense was 3.0% for the nine months ended September 30, 2010 and 2009, respectively.



19



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Depreciation



|                                  |  |                                  |       |   |                                 |         |      |   |       |      |  |   |          |   |      |         |  |   |        |  
|--------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | ------- | ---- | - | ----- | ---- |  | - | -------- | - | ---- | ------- |  | - | ------ | -
|                                  |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |        
|                                  |  | 2010                             |       |   | % Change                        |         | 2009 |   |       | 2010 |  |   | % Change |   | 2009 |        
|                                  |  | (Dollars in thousands)           |       |   | (Dollars in thousands)          |        
|HSN                               |  | $                                | 7,460 |   |                                 | 3%      |      | $ | 7,253 |      |  | $ | 22,327   |   |      | 4%      |  | $ | 21,387 |  
|Cornerstone                       |  |                                  | 2,106 |   |                                 | (3%)    |      |   | 2,177 |      |  |   | 6,659    |   |      | (7%)    |  |   | 7,123  |  
|                                  |  |                                  |       |   |                                 |         |      |   |       |      |  |   |          |   |      |         |  |   |        |  
|HSNi                              |  | $                                | 9,566 |   |                                 | 1%      |      | $ | 9,430 |      |  | $ | 28,986   |   |      | 2%      |  | $ | 28,510 |  
|                                  |  |                                  |       |   |                                 |         |      |   |       |      |  |   |          |   |      |         |  |   |        |  
|As a percentage of HSNi net sales |  |                                  | 1.4   | % |                                 | (10 bp) |      |   | 1.5   | %    |  |   | 1.4      | % |      | (10 bp) |  |   | 1.5    | %

HSNis depreciation
for the third quarter of 2010 was $9.6 million compared to $9.4 in the prior year and represents 1.4% of net sales compared to 1.5% in the prior year. Depreciation for the nine months ended September 30, 2010 was $29.0 million compared to $28.5
million in the prior year and represents 1.4% of net sales compared to 1.5% in the prior year.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure and is defined in Note 4 of Notes to Consolidated Financial Statements.



|                                         |  |                                  |        |   |                                 |          |      |   |        |      |  |   |          |   |      |        |  |   |         |   
|---------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -------- | ---- | - | ------ | ---- |  | - | -------- | - | ---- | ------ |  | - | ------- | --
|                                         |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |         
|                                         |  | 2010                             |        |   | % Change                        |          | 2009 |   |        | 2010 |  |   | % Change |   | 2009 |       
|                                         |  | (Dollars in thousands)           |        |   | (Dollars in thousands)          |         
|HSN                                      |  | $                                | 43,122 |   |                                 | (8%)     |      | $ | 47,061 |      |  | $ | 138,498  |   |      | 15%    |  | $ | 120,675 |   
|As a percentage of HSN net sales         |  |                                  | 8.7    | % |                                 | (140 bp) |      |   | 10.1   | %    |  |   | 9.4      | % |      | 80 bp  |  |   | 8.6     | % 
|Cornerstone                              |  | $                                | 5,855  |   |                                 | 237%     |      | $ | 1,737  |      |  | $ | 25,824   |   |      | 1116%  |  | $ | (2,542  | ) 
|As a percentage of Cornerstone net sales |  |                                  | 2.7    | % |                                 | 170 bp   |      |   | 1.0    | %    |  |   | 4.3      | % |      | 480 bp |  |   | (0.5    | %)
|HSNi                                     |  | $                                | 48,977 |   |                                 | 0%       |      | $ | 48,798 |      |  | $ | 164,322  |   |      | 39%    |  | $ | 118,133 |   
|As a percentage of HSNi net sales        |  |                                  | 6.9    | % |                                 | (70 bp)  |      |   | 7.6    | %    |  |   | 7.9      | % |      | 170 bp |  |   | 6.2     | % 

HSNis Adjusted
EBITDA for the third quarter of 2010 was $49.0 million compared to $48.8 million in the prior year and represents 6.9% of net sales compared to 7.6% in the prior year. These results were primarily due to the growth in net sales, partially offset by
the 170 basis point decline in gross profit margin, the $2.5 million sales provision for the product recall and the increase in operating expenses for investments in Cornerstones catalog circulation, the $2.5 million legal settlement, HSN2 and
marketing at HSN.

HSNis Adjusted EBITDA for the nine months ended September 30, 2010 increased 39% or
$46.2 million to $164.3 million and represents 7.9% of net sales as compared to 6.2% in the prior year. The increase in Adjusted EBITDA is primarily due to the 9% growth in net sales, partially offset by the increase in operating expenses for
compensation and employee-related costs, on-air distribution costs at HSN and investments in Cornerstones catalog circulation.

Operating Income (Loss)



|                                         |  |                                  |        |   |                                 |          |      |   |        |      |  |   |          |   |      |        |  |   |         |   
|---------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -------- | ---- | - | ------ | ---- |  | - | -------- | - | ---- | ------ |  | - | ------- | --
|                                         |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |         
|                                         |  | 2010                             |        |   | % Change                        |          | 2009 |   |        | 2010 |  |   | % Change |   | 2009 |       
|                                         |  | (Dollars in thousands)           |        |   | (Dollars in thousands)          |         
|HSN                                      |  | $                                | 30,744 |   |                                 | (17%)    |      | $ | 37,144 |      |  | $ | 104,503  |   |      | 14%    |  | $ | 92,045  |   
|As a percentage of HSN net sales         |  |                                  | 6.2    | % |                                 | (180 bp) |      |   | 8.0    | %    |  |   | 7.1      | % |      | 50 bp  |  |   | 6.6     | % 
|Cornerstone                              |  | $                                | 2,053  |   |                                 | 293%     |      | $ | (1,066 | )    |  | $ | 14,140   |   |      | 225%   |  | $ | (11,325 | ) 
|As a percentage of Cornerstone net sales |  |                                  | 1.0    | % |                                 | 160 bp   |      |   | (0.6   | %)   |  |   | 2.3      | % |      | 450 bp |  |   | (2.2    | %)
|HSNi                                     |  | $                                | 32,797 |   |                                 | (9%)     |      | $ | 36,078 |      |  | $ | 118,643  |   |      | 47%    |  | $ | 80,720  |   
|As a percentage of HSNi net sales        |  |                                  | 4.6    | % |                                 | (100 bp) |      |   | 5.6    | %    |  |   | 5.7      | % |      | 150 bp |  |   | 4.2     | % 

HSNis operating
income for the third quarter of 2010 decreased 9% or $3.3 million to $32.8 million compared to $36.1 million in the prior year. The operating margin in 2010 decreased to 4.6% compared 5.6% in 2009. The decline in operating income is primarily due to
an 8% increase in operating expenses, the 170 basis point decline in gross profit margin



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and the $2.5 million sales provision for the product recall, partially offset by the growth in net sales. The increase in operating expenses is primarily due to the investments in
Cornerstones catalog circulation; compensation and employee-related costs, including stock-based compensation; the $2.5 million legal settlement; HSN2; and marketing at HSN.

HSNis operating income for the nine months ended September 30, 2010 increased 47% or $37.9 million to $118.6 million as
compared to $80.7 million in the prior year. The operating margin in 2010 improved to 5.7% compared to 4.2% in 2009. The increase is primarily due to the 9% growth in net sales, partially offset by the increase in operating expenses for compensation
and employee-related costs, including stock-based compensation; on-air distribution costs at HSN; and investments in Cornerstones catalog circulation.

Other (Expense) Income



|                                  |  |                                  |        |    |                                 |         |      |   |        |      |  |   |          |    |      |         |  |   |         |   
|--------------------------------- |  | -------------------------------- | ------ | -- | ------------------------------- | ------- | ---- | - | ------ | ---- |  | - | -------- | -- | ---- | ------- |  | - | ------- | --
|                                  |  | Three Months Ended September 30, |        |    | Nine Months Ended September 30, |        
|                                  |  | 2010                             |        |    | % Change                        |         | 2009 |   |        | 2010 |  |   | % Change |    | 2009 |        
|                                  |  | (Dollars in thousands)           |        |    | (Dollars in thousands)          |        
|Interest income                   |  | $                                | 182    |    |                                 | 47%     |      | $ | 124    |      |  | $ | 428      |    |      | 102%    |  | $ | 212     |   
|Interest expense                  |  |                                  | (8,271 | )  |                                 | (6%)    |      |   | (8,768 | )    |  |   | (24,873  | )  |      | (6%)    |  |   | (26,517 | ) 
|                                  |  |                                  |        |    |                                 |         |      |   |        |      |  |   |          |    |      |         |  |   |         |   
|Other (expense) income, net       |  | $                                | (8,089 | )  |                                 | (6%)    |      | $ | (8,644 | )    |  | $ | (24,445  | )  |      | (7%)    |  | $ | (26,305 | ) 
|                                  |  |                                  |        |    |                                 |         |      |   |        |      |  |   |          |    |      |         |  |   |         |   
|As a percentage of HSNi net sales |  |                                  | (1.1   | %) |                                 | (20 bp) |      |   | (1.3   | %)   |  |   | (1.2     | %) |      | (20 bp) |  |   | (1.4    | %)

Interest expense
primarily relates to the $240 million of Senior Notes and the five-year term loan. The decrease in interest expense for the three and nine months ended September 30, 2010 compared to 2009 is due to the partial repayment of the term loan and a
decrease in the average interest rate of the term loan.

Income Tax Provision

For the three and nine months ended September 30, 2010, HSNi recorded a tax provision from continuing operations of $9.8 million
and $36.9 million, respectively, which represented effective tax rates of 39.7% and 39.2%, respectively. For the three and nine months ended September 30, 2009, HSNi recorded a tax provision from continuing operations of $10.8 million and $21.2
million, respectively, which represented effective tax rates of 39.5% and 39.0%, respectively. The effective tax rates for all periods presented are higher than the federal statutory rate of 35% due principally to state income taxes.

Liquidity and Capital Resources

As of September 30, 2010, HSNi had $259.4 million of cash and cash equivalents, down from $269.9 million as of December 31, 2009.

Net cash provided by operating activities attributable to continuing operations for the nine months ended September 30, 2010 was
$6.2 million compared to $117.0 million in the same period last year. This variance is principally due to an increase in inventories to support sales growth and increased payments of trade payables and income taxes, partially offset by the improved
operating performance.

Net cash used in investing activities attributable to continuing operations for the nine months ended
September 30, 2010 of $26.2 million resulted from capital expenditures. The capital expenditures were for investments in information technology, campus renovations and broadcasting-related investments. Net cash used in investing activities
attributable to continuing operations in 2009 of $25.5 million was primarily at HSN and was for investments in high-definition television programming, campus renovations and other information technology and broadcasting-related investments.

Net cash provided by financing activities attributable to continuing operations for the nine months ended September 30,
2010 was $9.4 million primarily due to cash proceeds of $12.8 million received from the issuance of common stock pursuant to stock-based awards, net of withholding taxes, partially offset by the repayment of $4.8 million of long-term debt. As of
September 30, 2010, $95.2 million was outstanding under the term loan and no amounts were outstanding under the revolving credit facility, except for letters of credit. Net cash used in financing activities attributable to continuing operations
in 2009 was $31.3 million due to repayments of $20.0 million for the revolving credit facility and $11.3 million of long-term debt.

The credit agreement contains two principal financial covenants consisting of a maximum leverage ratio of 2.75x and a minimum interest coverage ratio of 3.00x, among other covenants. HSNi was in
compliance with all such covenants as of September 30, 2010, with a leverage ratio of 1.33x and an interest coverage ratio of 8.25x. The amount available under the



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credit agreement is reduced by the amount of commercial and standby letters of credit issued under the revolving credit facility portion of the agreement. As of September 30, 2010, there
were $39.0 million of outstanding commercial and standby letters of credit issued under the revolving credit facility. The ability to draw funds under the revolving credit facility is dependent upon meeting the aforementioned financial covenants,
which may limit HSNis ability to draw the full amount of the facility. As of September 30, 2010, the additional amount that could be borrowed under the revolving credit facility, in consideration of the financial covenants and outstanding
letters of credit, was approximately $111.0 million.

HSNi does not currently have any material commitments for capital
expenditures; however, management does anticipate that HSNi will need to make capital and other expenditures in connection with the development and expansion of its operations. HSNis ability to fund its cash and capital needs will be affected
by its ongoing ability to generate cash from operations, the overall capacity and terms of its financing arrangements as discussed above, and access to the capital markets. HSNi believes that its cash on hand, its anticipated operating cash flows,
its available unused portion of the revolving credit facility and its access to capital markets will be sufficient to fund its operating needs, capital, investing and other commitments and contingencies for the foreseeable future.

Seasonality

HSNi is
affected by seasonality, although historically our business has exhibited less seasonality than many other retail businesses. Our sales levels are generally higher in the fourth quarter.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

For a description of HSNis market risks, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk in HSNis Annual Report on Form 10-K for the year ended
December 31, 2009. No material changes have occurred in HSNis market risks since December 31, 2009.



|Item 4. | Controls and Procedures
|------- | -----------------------

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of September 30, 2010. Based on that evaluation, management has concluded that the disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and to ensure that
information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2010
that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In the
ordinary course of business, we are involved in various legal matters arising out of our operations. These matters may relate to claims involving property, personal injury, contract, intellectual property (including patent infringement), sales tax,
regulatory compliance and other claims. At November 3, 2010, we are not a party to any legal proceedings that are reasonably expected to have a material adverse effect on our business, results of operations, financial condition or cash flows.
However, litigation matters are subject to inherent uncertainties and the results of these matters cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on our business,
results of operations, financial condition or cash flows. Moreover, any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and
result in the diversion of significant operational resources.

See Part I. Item 1. Financial Statements  Note
11  Commitments and Contingencies, for additional information regarding legal matters in which we are involved.



|Item 1A. | Risk Factors
|-------- | ------------

See Part I.
Item 1A., Risk Factors, of HSNis Annual Report on Form 10-K for the year ended December 31, 2009, for a detailed discussion of the risk factors affecting HSNi. There have been no material changes from the risk factors
described in the annual report.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



|Item 4. | Removed and Reserved
|------- | --------------------



|Item 5. | Other Information
|------- | -----------------

None



|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                |  |               
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|ExhibitNumber |  | Description                                                                                                                                                                                    |  | Location      
|              |  |                                                                                                                                                                                               
|31.1          |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act. |  | Filed herewith
|              |  |                                                                                                                                                                                               
|31.2          |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act. |  | Filed herewith
|              |  |                                                                                                                                                                                               
|32.1          |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.                                                  |  | Filed herewith
|              |  |                                                                                                                                                                                               
|32.2          |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.                                                  |  | Filed herewith



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 3, 2010



HSN, INC.By:

/s/ JUDY A. SCHMELINGJudy A. Schmeling Executive
Vice President and Chief Financial Officer




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